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Hansa Industries P. Ltd. & Ors. vs. Kidarsons Industries P. Ltd. [(2006) 134 Comp Cas 1(SC)].

The Nanda family closely held the first Respondent, a private limited company. Its main source of income was the commission earned from the agency business of a German company. However, disputes arose between the brothers and one of them, Appellant No. 2, succeeded in getting the agency exclusively in his name. The German company terminated the agency of the Respondent company and gave it to Appellant No. 1, a company controlled by Appellant No. 2. The Appellants filed a petition for winding up of the Respondent company, while the respondents filed a suit for declaration and for injunction restraining the Appellants from carrying on the agency business holding themselves out as the agent of the German company.

During the pendency of the proceeding the parties arrived at a compromise whereby the Appellant No. 2 and his group agreed to transfer their equity shares in the Respondent company, in favour of the Respondents. The price of the shares was to be paid in specie by transferring to the Appellants 30.14% of the assets of the company. The agency was to be retained by Appellant No. 2 and his group. Clause 14 of the compromise provided that Appellant

No. 2 would continue to occupy the portion of the property of the company in which he was residing as deemed owner/owner, and the value of such portion was to be taken into account for evaluating the assets of the company and adjusted against the value of his share.

However, further disputes arose between the parties, the Court appointed chartered accountants, who gave their report and on the basis of the value of the net assets of the company, worked out the value of each share. From this the valuers deducted 20% on account of provision restricting transfer of the shares of the Respondent company. The Appellant No. 2 filed objections to the report of the chartered accountants which were dismissed.

On appeal, in respect of the issue whether the portion of the property which at the time of settlement was occupied by Appellant No.2, the Division Bench of the Delhi High Court held that the interpretation placed on Clause 14 by the judge was correct and the property could not in any manner be given to Appellant No. 2.

The Hon’ble Supreme Court held that the High Court was not considering a matter in which it could have exercised its discretion to make allotment one way or the other as in a case of family partition. The decree of the court was based upon a settlement reached between the parties. Even at the time when the settlement was reached the parties were well aware of the strained relationship which existed between the parties. Despite this, it was agreed by all of them that the portion in the occupation of Appellant No. 2 shall be allotted to him and the value thereof adjusted against his share. Clause 14 of the settlement being unambiguous clear and categoric, it had to be given effect because it was not vitiated by fraud, or illegal being in breach of any statutory provision, or against public policy or hit by the principle of impossibility of performance. The settlement was made bona fide by the parties to resolve all their disputes and all facts were known to the parties when they reached the settlement. The question of practical inconvenience should have concerned the Respondents when they entered into the settlement. They could not at the stage of implementation of the settlement avoid a covenant in the settlement solemnly incorporated with their consent on the pretext of practical inconvenience of living in the same house, albeit in separate portions, in the unfortunate background of bickerings and acrimony.

Gowri Spinning Mills (P.) Ltd. vs. Asst. Provident Fund Commissioner & Anr. [(2006) 134 Comp Cas. 33(Mad.)(FB)]

The issue that arose in the present case was whether the action to recover the dues payable under the provisions of the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (EPF Act) is maintainable when the employer, who is sought to be proceeded against is an industrial company in respect of whom a proceeding is pending under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA)?

The Division Bench of the Madras High Court in the case of Essorpe Mills Ltd. vs. Central Provident Fund Commissioner [W.A. No. 1831 of 2001, dated 2nd November, 2001] had held that in view of the provisions of section 22 of SICA no action for realization against a sick company relating to the amounts payable under the EPF Act is permissible without prior consent from the BIFR.

The present case was posted for hearing before a Division Bench, however, it disagreed with the decision in Essorpe Mills case (supra) and took a view that section 22(1) of SICA has no application and the proceedings under the EPF Act would not come within the purview thereof. Consequently, the matters came to be referred to the Larger Bench.

The Full Bench of the Madras High Court held that SICA and the EPF Act are special statutes. The object of enactment of SICA was to provide for the revival and rehabilitation of sick industrial companies, whereas the object of the EPF Act was to provide social security to employees. The contribution of the employee and the employer towards provident fund is not a tax due. It is also not an amount recoverable under a contract. The moneys which have been deducted from the wages of the employees as well as the amounts which the employer is required to pay as its contribution, belong to the employees and constitute their rightful and just entitlement for the eventual payment of provident fund benefits.

The provisions of section 22(1) of SICA have no application to the provident fund dues and the provisions of the EPF Act would not come within the purview thereof. The provident fund and other dues payable under the EPF Act are part of the legitimate statutory settlement of the workers. An employer cannot refuse to comply with the statutory mandate to pay the contribution made by the employee as also his share. Although the object of SICA is laudable, it should not deprive the hard earnings of the employees. It does not and cannot stay the recovery of money to which the employees are entitled by way of social security.

Meena R. Sampath vs. State and Anr. [(2006) 134 Comp Cas 74 (Mad)].

A company owed a certain sum of money to the de facto complainant for the service rendered by the complainant that was kept in fixed deposit with the company and it promised to return it on maturity. On maturity of the amount, there was a further promise to return it with interest after a period of one year. In spite of maturity of the amount in the fixed deposit it was not repaid. On receipt of the complaint, a case was registered by the State under sections 406 and 420 of the Indian Penal Code, 1860 and was taken cognizance of by the Judicial Magistrate.

In a petition filed under section 482 of the Code of Criminal Procedure, 1973, one of the accused sought quashing the proceedings contending that being a public limited company, it was governed by the Companies Act, 1956 and as the deposit made was to the company, it was governed by sections 58A and 58AA of the Companies Act. Further, u/s. 58AAA every offence connected with or arising out of acceptance of deposits would remain cognizable under the Code of Criminal Procedure, 1973, notwithstanding anything contained in sections 621 and 624 of the Companies Act and that cognizance was possible authorized only when a complaint was made by the Central Government or any officer in that behalf. The Board for Industrial and Financial Reconstruction (BIFR) had declared the company a sick unit and that the de facto complainant was barred from initiating any action without the prior consent of the BIFR.

The Court held that admittedly the amount under deposit was not out of advertisement but for rendering of service by the complainant. So long as the deposit was not made u/s. 58A or 58AA of the Companies Act, section 58AAA of the Act was not applicable.

Niharika Gupta vs. Asia Insulated Wires P. Ltd. & Ors [(2006) 134 Comp case 79 (CLB)]

In a petition filed under section 111 of the Companies Act, 1956, the petitioner sought registration of 1/3rd of the shares held by her father and mother collectively. The respondent company contended that the petitioner had instituted a suit for partition claiming 1/3rd of the shares held by her parents and since that suit was filed prior in time the petitioner could not be allowed to prosecute parallel proceedings and that moreover she failed to produce either a will or probate or succession certificate as sought by the company.

The Company Law Board dismissed the petition and held that it was on record that the petitioner had filed a suit for partition prior in point of time to the filing of the petition and the shares also formed a part of the assets sought to be partitioned. From the fact that there was a partition suit including the shares it was obvious that there were disputes among the legal heirs of the deceased and therefore in terms of the Articles, the company was right in asking for a succession certificate. Further, granting the prayer in the petition without a succession certificate while the partition suit was pending would amount to taking a decision on partition.

Jay Engineering Works Ltd. vs. Industry Facilitation Council and Anr. [(2006) 71 SCL 189 (SC)]

The appellant was a sick company registered with the Board for Industrial & Financial Reconstruction (BIFR). It owed dues to the Second Respondent which was a small scale industry. The Second Respondent filed a claim petition before the Council i.e. the First Respondent under the Interest on Delayed payments to Small Scale & Ancillary Industrial Undertakings Act, 1993. The Council made an award in favour of the Second Respondent. The Appellant contended that it was a sick company and is entitled to the protection of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). However, the contention was set aside and the award was put to execution. The Writ filed by the Appellant before the High Court against the execution was dismissed. The Appellant appealed to the Supreme Court.

The Apex Court allowing the appeal of the Appellant held that the award of the Council being an award, deemed to have been made under the provisions of the Arbitration and Conciliation Act, 1996, indisputably is being executed before a Civil Court. Execution of an award, beyond any cavil of doubt, would attract the provisions of section 22 of SICA. Whereas an adjudicatory process of making an award under the 1993 Act may not come within the purview of SICA but once an award is sought to be executed it shall come into play, once the awarded amount has been included in the Scheme approved by the BIFR section 22 of SICA would apply. If the liabilities of the Appellant are covered by the Scheme framed u/s. 22 of SICA the High Court was clearly in error in coming to the conclusion that the provisions thereof are not attracted only because the debt had been incurred after the company was declared to be a sick one. SICA was enacted in public interest. It contains special provisions. The said special provisions had been made with a view to secure the timely detection of sick and potentially sick companies owning industrial undertakings. The speedy determination by a Board of expert for preventive, ameliorative, remedial & other measures which need to be taken with respect to such companies and the expenditure enforcement of the measures so determined and for matters connected therewith or incidental thereto.

Both the Acts operate in different fields. If SICA is attracted the question of its giving way to the 1993 Act would not arise. Both the Acts contain non-obstante clause, the latter shall prevail. But it is equally well settled that ultimate conclusion thereupon would depend upon the limited context of the statute. For the reasons, aforementioned the impugned judgment cannot be sustained.

Anil Kumar & Ors. vs. Vee Kay Oils P. Ltd. & Ors. [(2006) 134 Comp. Cas. 199 (CLB)]

In petition filed u/s. 397 and 398 of the Companies Act, 1956 alleging that the Board of Directors had taken a decision to buy back shares of another company and provide a corporate guarantee, which was ultra vires the memorandum of the company, the petitioners sought an order declaring it null and void.

The Company Law Board held dismissing the petition that the only allegation in the petition was about the board resolution dated 8-11-2004. To invoke the provisions of section 397 or section 398 of the Act there should be a continuous course of acts of oppression and/or mismanagement. A petition under sections 397 and 398 could not be maintained on a solitary instance of either alleged oppression or mismanagement.

Swagath Marine Products P. Ltd. vs. K. Muthuswamy [(2006) 134 Comp. Cas. 182 (CLB)]

The Respondent, an erstwhile director of the applicant company filed a petition u/s. 111 of the Company Act, 1956, seeking directions against the company to rectify the register of members of the company by substituting his name in respect of 500 equity shares and restoring his name as a director. On an application by the company for stay of the proceedings before the Company Law Board until disposal of the Civil Suit before the High Court contending that the subject matter in the company petition and the suit was materially the same.

The Board observed that by virtue of section 10 of the Code of Civil Procedures, 1908, a court shall not proceed with the trial of a suit in which the matter is directly and substantially the same as the one in issue in a previously instituted pending suit between the same parties or parties under whom they claim to litigate under the same title.

The Board held that the substantial issues involved in the suit would have to be dealt with in the company petition. The Respondent and the applicant in the Company Law Board proceedings were the parties in the civil suit. The issues involved in the suit pertained to the disputed letters of the Respondent purportedly transferring his 500 shares, being the subject matter before the CLB and resigning from the office of director of the company. The High Court while adjudicating the disputes between the parties would investigate the same documents those were seriously in dispute before the Board. The decision of the High Court would definitely affect the decision in the company petition that was later in point of time. Hence, section 10 of the Code of Civil Procedure would apply and the company petition was to be stayed till disposal of suit.

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